We're still in the earliest stages of what is projected to be a brutal third-quarter earnings season, so let's not get ahead of ourselves. But companies as disparate as Domino's Pizza (DPZ, $320.91) and Delta Air Lines (DAL, $31.00) are hinting at a stronger economy ahead.
Which is what we should expect based on official projections of economic growth. The Federal Reserve forecasts real, or inflation-adjusted, gross domestic product to increase a meager 0.2% this year, but then accelerate to 1.2% in 2023.
True, that's still below trend, but it would represent a significant improvement over what we've slogged through in 2022. Remember, GDP declined by 1.6% and 0.6% in the first and second quarters, respectively, of the current year.
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And although companies remain cautious in their outlooks, as noted above, a wide swath of them are reporting silver linings in their operations.
Take Domino's, for example. In addition to logging better-than-expected quarterly revenue growth, Domino's indicated that pressure from rising input costs appears to be abating. The pizza chain stuck with its previous forecast for food cost inflation of between 13% and 15%.
That is potentially a big deal. Perhaps inflationary pressures are indeed easing, as the Federal Reserve so desperately wants to see.
Separately, Delta is benefiting from consumers' pivot back toward services and experiences and away from goods. The airline posted record third-quarter revenue and said it sees no sign of a slowdown.
"The demand for air travel remains very strong," Delta CEO Ed Bastian said on a conference call with analysts. "After two years of delaying travel, it is clear that consumers are getting out and traveling the world."
A reduction in demand for goods should also alleviate some key inflationary pressures.
Meanwhile, over in the financial sector, earnings reports from some of the nation's biggest banks easily topped Wall Street estimates, leading some analysts to say it's time to buy bank stocks.
To be sure, DAL and DPZ are hardly a representative sample of what we're seeing in the aggregate this earnings season, which, at least so far, hasn't been so hot.
"The start of the third quarter earnings season for the S&P 500 has been weaker than normal, as the number and magnitude of positive earnings and revenue surprises have been smaller than recent averages," notes John Butters, senior earnings analyst at FactSet.
But DAL and DPZ do serve to underscore the fact that the outlook is not uniformly one of doom and gloom. The U.S. economy is wide and deep. You can pretty much always find pockets of strength somewhere.
Bottom line? If we are indeed headed for recession, the early reports from Q3 earnings season are far from providing conclusive evidence.
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